The Force of Licensing / Galaxy of players cash in on "Star Wars" merchandise

Dan Fost, Chronicle Staff Writer

Published
4:00 am PDT, Tuesday, May 18, 1999

Shin Hasegawa, center, pushes his way through the crowd to get to his friend Tomo Ichitsubo, right, during FAO Schwarz's sale of the newest "Star Wars" toys from the new movie "The Phantom Menace."
BY ROBIN WEINER/THE CHRONICLE less

Shin Hasegawa, center, pushes his way through the crowd to get to his friend Tomo Ichitsubo, right, during FAO Schwarz's sale of the newest "Star Wars" toys from the new movie "The Phantom Menace."
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Photo: ROBIN WEINER

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Shin Hasegawa, center, pushes his way through the crowd to get to his friend Tomo Ichitsubo, right, during FAO Schwarz's sale of the newest "Star Wars" toys from the new movie "The Phantom Menace."
BY ROBIN WEINER/THE CHRONICLE less

Shin Hasegawa, center, pushes his way through the crowd to get to his friend Tomo Ichitsubo, right, during FAO Schwarz's sale of the newest "Star Wars" toys from the new movie "The Phantom Menace."
BY ROBIN ... more

Photo: ROBIN WEINER

The Force of Licensing / Galaxy of players cash in on "Star Wars" merchandise

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In the "Star Wars" universe, money flies like sparks from a supernova.

Privately held Lucasfilm Ltd., director George Lucas' Marin County company, holds most of the purse strings by virtue of making the wildly popular movies, the latest of which -- "Star Wars: Episode I -- The Phantom Menace" -- opens tomorrow.

Lucasfilm shares the wealth, however, through a range of licensing agreements -- some with companies in the Lucas family, like computer gamemaker LucasArts Entertainment Co., and some with the makers of toys, books, fruit snacks, toothbrushes and pillowcases. These range from major players like Hasbro Inc., Pepsico Inc., Hallmark and Colgate-Palmolive to Internet firms like Amazon.com and Yahoo, to ordinary entrepreneurs who see a chance to cash in on a major marketing phenomenon.

Thanks to licensing, Lucasfilm wouldn't even need to sell a single ticket to "Phantom Menace" in order to recoup the $115 million cost of production.

The merchandising of "Star Wars" seems obvious in an era in which movies routinely have massive licensing blitzes. It's remarkable to realize that the first "Star

Wars" movie in 1977 not only pioneered dazzling special effects, but also blazed a trail for moviemakers to cash in with sales of ancillary products like toys, clothes, backpacks and party favors.

Just as the story of "Star Wars" has grown into a quasi-religion, a modern myth laden with rich conflicts between good and evil, the business now has grown beyond images flickering on a screen, bigger even than toy Luke Skywalkers and light sabers flying off store shelves.

It's now the sort of financial behemoth that has Hasbro paying nearly $400 million for the rights to make toys based on the movie -- and Hasbro is just one of 75 licensees making a total of hundreds of products.

In the modern age of movie merchandising that many say started with the first "Star Wars" film 22 years ago, "The Phantom Menace" appears destined to break all sorts of records -- for toys, not just ticket sales.

That's not exactly the goal.

"It's not a game of how many products you can get out there," said Howard Roffman, Lucasfilm's vice president of licensing. He said the company just aims to satisfy its legions of fans.

Movies that try to imitate the merchandising success of "Star Wars" almost always fall short, he said. " 'Star Wars' is unique in the way it touched people," Roffman said. "It's that bond that made the merchandising possible. You can't create that. It happens or it doesn't happen."

But Lucasfilm faces some significant challenges in maintaining order. It works hard to protect its trademarks from pirates looking to rip off the "Star Wars" brand.

In March, Lucasfilm said it received $1 million as a settlement from two unnamed companies that made counterfeit products. Roffman said the company also received a temporary restraining order against a collector's magazine.

Lucasfilm and its distributor, Twentieth Century Fox, have kept their advertising to a minimum, choosing instead to let the media hype and other merchandising promote the movie for them.

So many "Star Wars" products are on the market, and are in so many places, that Lucasfilm almost doesn't need to advertise the film on its own.

Pepsi, for instance, plans a summer-long ad campaign featuring a character created by Lucas' effects house Industrial Light and Magic. The "spokes-alien," Marfalump, does not appear in the movie.

With so much demand for "Phantom" products, Roffman said the company must exercise caution that it doesn't dilute the brand.

"We probably could have been on every product in the supermarket," Roffman said. Instead, the company stopped with Pepsi and Frito-Lay. "We drew the line there and made an awful lot of enemies."

Except for a candy dispenser that toy licensee Hasbro Inc. is making, Lucasfilm rejected many pitches for candy bars, Roffman said. "We look at what's the reason for a product," Roffman said. "If it's cool and creative and new, that speaks volumes to us. If it's simply putting a wrapper on a candy bar, we don't see the value in it."

Hasbro, the main "Phantom" toy vendor, won't say what it expects to earn from the movie tie-ins, other than to say it anticipates a good summer. "The initial reaction has been just phenomenal," said Hasbro Senior Vice President Wayne Charness. "It's not often you see stores opening their doors at midnight to welcome a new line." On May 3, the first day Lucasfilm allowed the sale of toys from the new movie, many toy stores across the country opened at the stroke of midnight to sell to lines of eager fans.

www.episodeii. com and www.episodeiii.com -- as a $1 million package on the Internet auction site eBay.

Sherman didn't get any buyers, and another site -- www. starwarsnet.com -- brought him a notice from Lucasfilm over his unapproved use of the "Star Wars" trademark.

He hopes to build up enough traffic that the sites will fetch a princely sum from "eToys or Toys R Us or someone who wants to be a major player in the online retailing world."

Internet companies like eBay, Yahoo, Amazon.com and Reel.com are having a field day with "Phantom Menace" mania, setting up separate "Star Wars" stores on their sites.

"Even though 'Episode I' won't be out on video for a while, we've made a large marketing deal out of it," said Jeff Jordan, president of Reel.com, an Emeryville firm that sells movie videos over the Internet.

Reel.com has caught the fever in a big way. First, the company snapped up and hoarded as many copies as it could of the video cassette of the "Star Wars Trilogy: Special Edition." It claims to have virtually cornered the market. Amazon.com is sold out, for instance, but the package is available at Reel.com. There's also a new commercial venture cashing in on "Star Wars" e- tailing: Lucasfilm itself. The company has its own site, www.shop. starwars.com, run by a longtime Lucas licensee, Dan Madsen, president and publisher of Fantastic Media in Denver. The site sells the same toys available in stores as well as some exclusive products.

Madsen was a die-hard "Star Wars" devotee who ran the official fan club for Lucasfilm since 1985. He's turned it into a booming business, growing from 15 employees five years ago to 110 employees today. Although he doesn't disclose revenues, he says the figure is "in the millions."

"Lucasfilm started to rejuvenate the licensing program five years ago," Madsen said. "Its fans never dropped off the face of the earth. They just hibernated."

Madsen's loyalty has paid off in a big way, and not just in his licensing arrangements. The 37-year-old fan- turned-businessman has a cameo role at the end of "Phantom Menace."